When President Bush formed his President’s Advisory Panel on Federal Tax Reform he charged that panel with developing a tax reform proposal that would achieve three principal objectives:

1.  The proposal should simplify the Federal tax code so as to reduce the costs of tax compliance. 

2.  The proposal should promote home ownership and charitable giving.

3.  The proposal should promote economic growth, job creation and encourage individual saving and investment while strengthening the competitiveness of the US in the global economy.

We now have a clear indication of the proposals that will come from the president’s tax reform panel, and it’s fair to say that not one of the above objectives will be realized, much less addressed.  The tax reform panel, having failed to follow its mandate, should be dissolved immediately and the panel members sent off to create mischief elsewhere.

Former Louisiana Senator John Breaux, who serves with Florida Republican Connie Mack as co-chairs of the panel, announced this week that the panel is not going to seek a wholesale reform of our tax code.  No surprise there.  Why would politicians want to abandon a tax code that has served them, if not the people, so well for generations?  The ability to manipulate tax laws so as to buy votes and reward large campaign contributors is not something we should not expect politicians to abandon without a fight.

If you’re not sitting down, maybe it would be a good idea to pull up a chair.  You are about to learn what this esteemed panel is going to propose to meet the three primary charges contained in the Executive Order which brought them to this tax reform dance. 

First tax reform proposal:  A tax increase for the owners of more expensive homes.   Right now home owners are allowed to deduct the interest on the principal balance of home loans up to one million dollars.  The panel apparently will recommend that this deduction limit be lowered, perhaps to $350,000.  This would mean that taxpayers with loans on more expensive homes will be hit with a tax increase.  Admittedly, this reform proposal will resonate with a good many Americans who wallow in wealth envy, so we’ll give the panel some credit for carrying the banner of class warfare.

The panel’s second tax reform proposal will be to require businesses to pay taxes on a portion of the cost of any health insurance or health care benefits provided to employees.  Right now employer can deduct those costs.  The panel wants to put a limit on what can be deducted.  Result?  A tax increase for businesses.

The panel proposes to spend the tax money gained from these two tax increases to cover the cost of eliminating the hated Alternative Minimum Tax. 

There is nothing in these proposals that would reduce the cost of tax compliance in this country; a cost that by some estimates reaches between $300 and $500 billion a year.  In fact, these proposals will increase the cost of tax compliance as individuals and businesses scramble to find a way to deal with these costly new tax rules.  There is also nothing in these proposals that would in any way encourage home ownership.  You simply do not encourage people to buy homes by threatening their cherished home mortgage interest deduction while raising their income taxes.  Continued...